Garcia et al v. DESARROLLADORA DE ILUSIONES, S.A. DE C.V. et al

Filing 38

ORDER GRANTING re 30 MOTION for Leave to File Second Amended Complaint filed by COMERCIALIZADORA Y CONSTRUCTORA MIGSAL, S.A. DE C.V.,, GRANTING 21 MOTION to Dismiss filed by Onay Safiya Patrice Payne, Clarion Partners, LLC, Ronald Scott Brown, James Christian Hendricks, LION MEXICO CONSOLIDATED, L.P.,,VACATED IN PART 28 Order on Motion to Stay. Signed by Judge David A. Ezra. (wg)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
ERNESTO KARAM GARCIA,
§
MIGUEL ANGEL LEYVA URQUIA, §
SALVADOR RIO DE LA LOZA
§
POSTIGO, COMERCIALIZADORA Y §
CONSTRUCTORA MIGSAL, S.A. DE §
C.V., ECON DESARROLLADOR
§
INMOBILIARIO, S.A. DE C.V., and §
DESARROLLADORA DE
§
ILUSIONES, S.A. DE C.V.,
§
§
Plaintiffs,
§
§
vs.
§
§
LION MEXICO CONSOLIDATED,
§
L.P., CLARION PARTNERS, LLC,
§
JAMES CHRISTIAN HENDRICKS, §
RONALD SCOTT BROWN, and
§
ONAY SAFIYA PATRICE PAYNE, §
§
Defendants.
§

No. 5:15–CV–1116–DAE

ORDER: (1) GRANTING MOTION TO DISMISS FIRST AMENDED
COMPLAINT; (2) GRANTING MOTION FOR LEAVE TO FILE SECOND
AMENDED COMPLAINT
Before the Court is a Motion to Dismiss the First Amended Complaint
(Dkt. # 21), filed by Defendants Lion Mexico Consolidated, L.P. (“Lion”), Clarion
Partners, LLC (“Clarion”), James Christian Hendricks, Ronald Scott Brown, and
Onay Safiya Patrice Payne (collectively, “Defendants”). Before the Court is also a
Motion for Leave to File a Second Amended Complaint, filed by Ernesto Karam
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Garcia, Miguel Angel Leyva Urquia, Salvador Rio de la Loza Postigo,
Commercalizadora y Constructadora Misgal, S.A. de C.V. (“Misgal”), Econ
Desarrollador Inmobiliario, S.A. de C.V. (“Econ”), and Desarrolladora de
Ilusiones, S.A. de C.V. (“Ilusiones”) (collectively, “Plaintiffs”) (collectively,
“Plaintiffs”). The Court held a hearing on the Motions on October 20, 2016.
Jaime Pena, Esq., and James A. Gleason, Esq., appeared on behalf Plaintiffs.
Richard T. Marooney, Esq., and William Robert Burns, Esq., appeared on behalf of
Defendants.
For the reasons that follow, the Court GRANTS Defendants’ Motion
to Dismiss with leave to amend (Dkt. # 21) and thus GRANTS Plaintiffs’ Motion
to File a Second Amended Complaint (Dkt. # 30). The Court also VACATES IN
PART its July 28, 2016 order, as explained below (Dkt. # 28).
BACKGROUND
Plaintiffs Garcia, Urquia, and Postigo (the “Palmetto Investors”) are
individuals and citizens of Mexico, each of whom resides in the United States.
(“Am. Compl.,” Dkt. # 14 ¶¶ 24–26, 88–89). Plaintiffs Misgal, Econ, and
Ilusiones are Mexican corporations located in Mexico City, Mexico. (Id. ¶¶ 27–
29.) The Palmetto investors created Econ to develop the “Punta Mar” real estate
project in Acapulco, Mexico. (Id. ¶¶ 56–7.) Misgal and Ilusiones were created to
serve as beneficiaries to the land trust for Punta Mar. (Id. ¶¶ 90–91.)
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On December 14, 2015, Plaintiffs filed suit against Clarion, a real
estate investment management firm, and Lion, a Clarion investment vehicle
dedicated to real estate opportunities located in Mexico; each maintains a place of
business in Dallas, Texas. (Id. ¶¶ 30–33, 41–57.) Plaintiffs also named as
defendants Hendricks and Payne, who are equity owners and leaders of Clarion,
and Brown, a Clarion employee allegedly intimately involved with the actions of
Clarion and Lion. (Id. ¶¶ 34–36; 58–87.) Plaintiffs filed their First Amended
Complaint, currently the live complaint in this action, on May 3, 2016. (Id.)
Plaintiffs’ First Amended Complaint alleges, in short, that Defendants
acquired control of MIFEL, the Mexican operating trust responsible for
development of the Punta Mar Project, and consequently the Punta Mar
development, by means of bribery, extortion, obstruction of justice, and mail and
wire fraud. (Am. Compl. ¶¶ 182–91.) The Amended Complaint alleges violations
of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§§ 1961 et seq., conduct of affairs in violation of 18 U.S.C. § 1962(c), conspiracy
to violate RICO, fraud, tortious interference with contracts, malicious prosecution,
unjust enrichment and conversion, and civil conspiracy in violation of Texas law.
(Am. Compl. ¶¶ 192–259.)
Before the filing of the First Amended Complaint, the Supreme Court
had taken under consideration the case RJR Nabisco, Inc. v. European Community,
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which addressed the extraterritorial application of RICO’s private right of action,
and considered whether certain predicate acts could apply extraterritorially. 136 S.
Ct. 2080 (2016). This Court granted Defendants an extension of time to file a
motion to dismiss the Amended Complaint, pending the Supreme Court’s decision
in RJR Nabisco. (Dkt. # 17, text order.) The Court subsequently granted
Defendants’ Motion to stay discovery and to stay the entry of a scheduling order
pending the outcome of the Defendants’ Motion to Dismiss. (Dkt. # 28.) The
Court did so in part due to concerns about the potential for discovery abuse under
the broad-reaching Amended Complaint. (Id. at 8.)
Defendants filed a Motion to Dismiss the Amended Complaint on July
11, 2016. (Dkt. # 21.) On August 29, 2016, Plaintiffs filed a Motion to File a
Second Amended Complaint (Dkt. # 30). Their Response to Defendants’ Motion
to Dismiss defers to their Motion to Amend. (Compare Dkt. # 31 with Dkt. # 30.)
Defendants filed a Response to Plaintiffs’ Motion to Amend their Complaint (Dkt.
# 33), and Plaintiffs filed a Reply (Dkt. # 34). On October 17, 2016, without leave
of Court, the Plaintiffs filed a Supplemental Memorandum in Response to
Defendants’ Motion to Dismiss. (Dkt. # 36.)
DISCUSSION
Federal Rule of Civil Procedure 15 allows a party to “amend its
pleading only with the opposing party’s written consent or the court’s leave.” Fed.
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R. Civ. P. 15(a)(2). The Rule directs the court to “freely give leave when justice so
requires.” Id. “The policy of the Federal Rules is to permit liberal amendment.”
Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir. 2006) (quoting Dussouy
v. Gulf Coast Inv. Corp., 660 F.2d 594, 597–98 (5th Cir. 1981)); Lyn-Lea Travel
Corp. v. Am. Airlines, Inc., 283 F.3d 282 (5th Cir. 2002). Despite the policy of
liberal amendment, the “decision to grant [or deny] leave is within the discretion of
the trial court,” and the trial court should deny leave where it can articulate “a
substantial reason” for doing so. Matter of Southmark Corp., 88 F.3d 311, 314–15
(5th Cir. 1996). Accordingly, when determining whether to grant leave to amend
pleadings, a court should deny leave if there exist “such factors as undue delay . . .
undue prejudice to the opposing party, and futility of amendment.” Id.
ANALYSIS
Plaintiffs argue that the Court should grant them leave to file a Second
Amended Complaint, because there has been a significant intervening change in
the law since their First Amended Complaint was filed. (Dkt. # 30 at 5.)
Defendants argue that Plaintiffs’ Motion to Amend should be denied, because the
proposed Second Amended Complaint is futile, offered in bad faith, and would
unduly prejudice the Defendants. (Dkt. # 33 at 4.)

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I.

Whether Granting Leave to Amend would be Futile
Prior to RJR Nabisco, it was unclear whether RICO provided a private

right of action to plaintiffs alleging an extraterritorial injury, where either the
predicate acts of racketeering or the injury itself occurred extraterritorially. RJR
Nabisco considered whether RICO’s substantive provisions apply to conduct
occurring in foreign countries, and considered whether RICO grants a private right
of action to individuals who suffer RICO injuries in foreign countries. See RJR
Nabisco, 136 S. Ct. at 2099–2011; 18 U.S.C. §§ 1962, 1964(c).
RJR Nabisco determined that “a pattern of racketeering activity may
include or consist of offenses committed abroad in violation of a predicate statute
for which the presumption against extraterritoriality has been overcome,” and sets
forth guidelines for determining whether specific RICO predicates alleged by a
plaintiff have extraterritorial application. RJR Nabisco, 136 S. Ct. at 2102.
Accordingly, “[a] violation of § 1962 may be based on a pattern of racketeering
that includes predicate offenses committed abroad, provided that each of those
offenses violates a predicate statute that is itself extraterritorial.” Id. at 2103. On
the other hand, the Supreme Court concluded that “[i]rrespective of any
extraterritorial application of § 1962 . . . § 1964(c) does not overcome the
presumption against extraterritoriality. A private RICO plaintiff therefore must
allege and prove a domestic injury to its business or property.” Id. at 2106
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(emphasis in original). In sum, a private plaintiff may allege extraterritorial
predicate RICO acts, so long as the underlying statutes are meant to apply
extraterritorially. However, a private plaintiff must allege a domestic injury caused
by these acts in order to state a cause of action under RICO. Id.
It is without question that the RICO claims alleged in the First
Amended Complaint, importantly filed before the Supreme Court’s decision in
RJR Nabisco, should be dismissed pursuant to the Defendants’ Motion to Dismiss.
(Dkt. # 21.) In order for a private plaintiff to sue under RICO, it must establish
“standing to sue under 1964(c),” Price v. Pinnacle Brands, Inc., 138 F.3d 602, 606
(5th Cir. 1998), which grants standing to a person “injured in his business or
property by reason of [the alleged RICO violation].” 18 U.S.C. § 1964(c).
The RICO injuries alleged by Plaintiffs in the First Amended
complaint are entirely extraterritorial; Plaintiffs list the following injuries in their
First Amended Complaint:
[P]ast and continuing loss of Plaintiffs’ property, business profits and
business equity interest in Punta Mar . . . damage to Plaintiffs’
reputation and goodwill and related exposure to lawsuits and claims . .
. the impairment of Plaintiffs’ interest in executed contracts and
agreements representing their interest in MIFEL; the taking of
Plaintiffs’ trademark “Punta Mar”; the [wrongful acquisition] of
property from MIFEL to [Defendants]; and attorney’s fees and costs
to defend themselves against . . . criminal charges in Mexico and in
related immigration proceedings in the U.S. including the . . . costs
associated with this proceeding.

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(Am. Compl. ¶ 203.) With the exception of the injuries related to the immigration
proceedings, the injuries alleged in the First Amended Complaint relate exclusively
to damages and losses that occurred extraterritorially, in Mexico. 1 Accordingly,
while these claims may have potentially survived prior to the Supreme Court’s
decision in RJR Nabisco, it is now clear that Plaintiffs do not have standing to
bring RICO claims for extraterritorial injuries under 18 U.S.C. § 1964(c). These
claims are therefore DISMISSED WITH PREJUDICE.
Conversely, the proposed Second Amended Complaint attempts to
remedy the issue of extraterritorial injuries, alleging that the individual Palmetto
investors suffered the following domestic injuries as a result of Defendants’
conduct: (1) Urquia lost his fifty-percent ownership interest in Gapa USA, Inc., a
wholesale food business with offices in Texas and California (“Prop. 2d Am.
Compl.,” Dkt. # 30, Ex. A ¶¶ 98–99); (2) Garcia lost an investment and property
interest in CYE Corporation, a restaurant venture in San Antonio, Texas, as well as
a 50 percent equity interest in KARR Auto Sales (id. ¶¶ 100–103); and (3) Postigo

1

“To prevail in a RICO suit, a plaintiff must demonstrate an injury to business or
property.” Hughes v. Tobacco Inst., Inc., 278 F.3d 417, 422 (5th Cir. 2001);
Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985) (“[T]he plaintiff only has
standing if, and can only recover to the extent that, he has been injured in his
business or property.”). The immigration proceedings in the United States are
personal injuries, and cannot be asserted under RICO. See Bradley v. Phillips
Chem. Co., 337 625, 646–47 (S.D. Tex. 2007) (finding that economic
consequences of personal injuries do not qualify as ‘injury to business or
property’” sufficient to convey standing under RICO).
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lost a fifty-percent equity interest in Tequila Don Ramon, EC, LLC, a tequila
distribution limited liability company headquartered in Miami, Florida (id. ¶¶ 104–
105).
Defendants argue that the domestic harms alleged are not linked to the
predicate acts set forth in the Second Proposed Amended Complaint, that the crux
of Plaintiffs’ claimed injuries remains in Mexico, and that Plaintiffs’ attempt to
include domestic injury is insufficient to convey standing under 18 U.S.C.
§ 1964(c). (Dkt. # 33 at 5–7.) While Defendants’ argument may ultimately
prevail, Plaintiffs should be afforded the opportunity to fully brief this issue at
either the Motion to Dismiss or Motion for Summary Judgment stage. Given the
intervening change in law, permitting the Plaintiffs leave to amend is not futile; the
Court cannot “articulate ‘a substantial reason’” for denying leave to amend on this
basis. See Matter of Southmark Corp., 88 F.3d at 314–15.
II.

Whether Plaintiffs Seek to Amend in Bad Faith
Defendants argue that Plaintiffs’ Motion to Amend is made in bad

faith, because the complaint resurrects certain claims that were included in the
original complaint but not in the first amended complaint, and omits facts
contained in the amended complaint. (Dkt. # 33 at 7–8.) Notably, the First
Amended Complaint was over seventy pages long, and the proposed second
amended complaint is approximately forty pages. This does not appear to indicate
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bad faith, and instead appears to be at least an attempt to narrow the issues before
the Court. Nonetheless, a further attempt to amend may well be seen by the Court
as being indicative of bad faith, as the parties have now been engaged in this
lawsuit for nearly a year. As explained in the hearing, Plaintiffs may only file a
third amended complaint if they do so within thirty (30) days of the date of this
order, and if the third amended complaint narrows the issues currently presented in
the Second Amended Complaint.
III.

Whether Defendants will be Unduly Prejudiced
Defendants claim they will be unduly prejudiced if the Court grants

Plaintiffs leave to amend, because Defendants are suffering from the stigma of
RICO allegations, and because Plaintiffs should have pled domestic injuries in
their initial complaint knowing it was likely the Supreme Court would interpret the
extraterritorial nature of RICO in the manner that it did. (Dkt. # 33 at 9–10.)
These arguments are unavailing.
The Court additionally notes that it stayed entry of a scheduling order
and discovery in the case, pursuant to Defendants’ motion. (Dkt. # 28). The
Defendants have not engaged in extensive motions practice aside from filing the
motions to dismiss. Further, Plaintiffs’ claims for fraud (Am. Compl. ¶¶ 231–238;
Prop. 2d Compl. ¶¶ 137–143); tortious interference with contract (Am. Compl.
¶¶ 239–244; Prop. 2d Compl. ¶¶ 144–148); unjust enrichment and/or conversion
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(Am. Compl. ¶¶ 250–253; Prop. 2d Compl. ¶¶ 149–152); and civil conspiracy
(Am. Compl. ¶¶ 254–259; Prop. 2d Compl. ¶¶ 153–157) remain largely unchanged
from the First Amended Complaint, and Defendants will not be required to expend
significant additional work moving to dismiss these claims, should they choose to
do so. The Proposed Second Amended Complaint abandons the malicious
prosecution claim contained in the First Amended Complaint (Am. Compl.
¶¶ 245–249).
Finally, to minimize any prejudice to Defendants, the Court
VACATES IN PART the previously imposed discovery stay (Dkt. # 28). The
parties are permitted to engage in limited discovery related to the core issues of the
case; such discovery will be overseen by United States Magistrate Judge John W.
Primomo. The stay regarding entry of a scheduling order is VACATED to
facilitate the timely disposition of this case, and the parties are ordered to file joint
scheduling recommendations to the Court within seven days of the issuance of this
order. (Dkt. # 28.) This will balance the possible harm Defendants may face,
should Plaintiffs’ claims ultimately be unfounded, with Plaintiffs’ right to access
information pertinent to the issues at the heart of the suit.
Accordingly, the Court finds that the Defendants will not be unduly
prejudiced if the Plaintiffs are granted leave to amend, and that the factors weigh in
favor of amendment. Defendants’ Motion to Dismiss the First Amended
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Complaint is GRANTED (Dkt. # 21). Plaintiff’s RICO claims, insofar as they
predicate standing on extraterritorial RICO injuries, are DISMISSED WITH
PREJUDICE. All other claims are DISMISSED WITHOUT PREJUDICE, and
Plaintiffs’ Motion for Leave to File a Second Amended Complaint is GRANTED
(Dkt. # 30). Plaintiffs will not be granted leave to file a third amended complaint,
unless they choose to do so within thirty days of the date of this order.
Importantly, this Third Amended Complaint may only narrow the facts and claims
in the Second Amended Complaint, and may not add any additional facts or
claims. Should the Plaintiffs choose to file a third amended complaint within these
parameters, they need not seek leave of Court prior to filing, and the third amended
complaint will supersede the Second Amended Complaint. In either case,
Defendants’ deadline to file an answer will be forty days from the date of this
order, to account for the time in which Plaintiffs may file a third amended
complaint.
CONCLUSION
For the reasons stated above, Defendants’ Motion to Dismiss is
GRANTED (Dkt. # 21), and Plaintiffs’ Motion for Leave to File a Second
Amended Complaint is GRANTED (Dkt. # 30).
This Court’s July 29, 2016 order staying discovery pending a decision
on the Motion to Dismiss is VACATED IN PART, and limited discovery related
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to the core issues in the case is permitted to proceed (Dkt. # 28). The same order is
VACATED insofar as it stayed the entry of a scheduling order, and the Court
ORDERS the Parties to submit joint scheduling recommendations within seven
days of the date of this order (Dkt. # 28).
IT IS SO ORDERED.
DATED: San Antonio, Texas, October 21, 2016.

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